The Warwick MBA

Assignment Cover Sheet

Submitted by: <106950> DL10CW Date Sent: 7/24/2011 Module Title: Operations Management Assignment B Module Code: IB8160 Date/Year of Module: Jan/2011 Submission Deadline: Nov/2011 Word Count: Number of Pages:3 Question 1: [Please read the North West Constructive Bank The New Mortgage Centre (2) in the textbook (pp. 1636) and answer all the questions at the end of the case:
1. Does it matter that Andy and his team cannot

allocate all the time necessary to process mortgage application to individual activities?]

To determine whether Andy and his team have sufficient time to process all the Mortgage payments we will have to determine the throughput rate and cycle time it takes them to

process each application and determine whether they are staffed to handle the load of 76,250 applications in a year. We can first consider that this application is processed through a Short-fat arrangement and all the activities are being completed by a single individual. In that case we know that Cycle Time for the Process = Time Available / Number to be processed.

Considering a 52 hour week and 40 hrs a week, Time Available = 52 * 40 * 60 = 124,800 minutes Number to be processed = 76,250 applications Cycle Time = 1.64 Seconds.

Now we look at the Process Capacity in order to meet the Cycle Time of 1.64 seconds. As we know that Cycle Time Hence, Number of People = = Work Content / Number of People in the process Work Content / Cycle Time

Short-Fat arrangement Let us now take a look at the Work Content required to process a Single application. As shown in Table 5.4 The total allowed time for all activities = = Number of People = = 112 112 Minutes.

112 / 1.64 69 People.

Hence if we consider a Short-Fat arrangement, We would need 69 people to process 76,250 applications. Now lets take a look at the Long and Thin as shown in Figure 5.18 We see that Now if we look at the number of people actually employed by Northwest Bank who process by region.

Northern Data Stage Underwriting Offer Completion Total 19 28 14 61

Southern 12 22 28 15 65

Western 5 12 5 22

Total 12 46 68 34 160

In addition there are 12 employes working on the Data Input stage. Hence the total = 148 + 12 = 160 Employees.
If we look at the cycle times for the various groups :Data Stage :Number of People required:16/1.64 = 10 People.

Hence we can see that there is under-utilization of people as 12 people were employed for this activity. Underwriting Stage :Number of People Needed Actual People allocated := :35/1.64 22 People 46 People

Offer Stage :Number of People Actual People allocated Completion Stage :Number of People Actual People allocated Throughput time := := = = 25/1.64 16 People 34 People Work in Progress * Cycle Time 5000 * 1.64 8200 Minutes. := :36/1.64 22 People 68 People

*The above calculation does not take into consideration the geographical segregation of teams as it is assumed to be proportional to the geographical demand of the applications.

Considering that Andys team is much bigger than the number of people to process 76,250, it is apparent that there is a discrepancy between the work load and number of people which can be explained as follows :-

1) Seasonality of Demand :- The workload of 76,250 represents an annual number and the seasonality of demand can 2) The staff has to move about more in the new process and wait times between activities which is not reflected in the allowed time. 3) Low utilization of staff which could be attributed to low morale due to the changes.

Question 2: [ Should the process be redesigned, and if so, which option should be adopted? ]
Andy and his team have three separate options for the design of the process which were being considered. Lets take a look at each of these options to determine if they would provide any benefit over the current process. Option 1:The first option is the do nothing option and something which we need to consider as a change brings its own set of challenges. As shown in the above answer by redesigning the process to Option-1, We would have savings in the overall staff as highlighted above in Red. We would be able to process the same number of application as being done currently with 70 people instead of 160 people. Option 2:Option 2 creates a Thin and Long arrangement by organizing four Sequential teams around the four stages of data input, Underwriting, Offer and Completion. In this arrangement the overall throughput time average Cycle time is 36 minutes (Offer Stage), which creates the balancing loss in the other stages as follows :Data Input Stage :(36 16 ) Underwriting Stage :(36 35) Offer Stage :(36 36) Completion Stage :(36 25) = 20 Minutes. = 1 Minutes. = 0 Minutes = 11 Minutes.

This creates a balancing loss of = (32 / 4 * 36) * 100 Balancing Loss = 22%. Using Littles Law Throughput time

= Work in progress X cycle time = 4 X 1.64 = 6.56 minutes

Option 3:-

In this option, we are organizing the team into four teams in four stages but operating the underwriting and offer stages in parallel.

When the underwriting and offer stage are run in Parallel, this essentially creates the effect of having a 3 stage process rather than 4 stages . Hence, = Work in Progress X Cycle Time = 3 X 1.64 = 4.92 minutes. This also helps in reducing the throughput time of processing the applications when the offer and Underwriting stages are run in parallel. Thus it is clear that option 3 does offer the benefit of increased throughput times over the other 2 options and hence to meet the Northwest banks objective of faster processing of the mortgage application the redesign of process. Throughput time

Question 3: [How could the recycling problem be reduced, and what benefits would this bring?]
As mentioned in the case study, Recycled applications accounted for a total of 21,735 applications. Majority of these were a result of documents or information being missing on the application with a small percentage being a result of customer changing their minds. Moreover the Agents accounted for a larger percentage of recycled application than the Banks own branches. Hence we could add an additional screening Process Adding an initial Screening Process :- Creating an initial Screening process for all applications coming to the Bank at the Data Input state. This would add an additional 20 minutes to the Work Content and would need additional staffing in the Data Input Stage. This process would also have a mechanism of streaming the Agent supplied applications going through additional scrutiny for data validation and data integrity to ensure the quality of overall process. We could also segregate the Data Input stage into two separate processes :Agent Received applications and Bank originated applications.
Data Stage Changes :Number of People required:36/1.64 = 22 people

Impact of the Change :Currently we see that 12 people are staffed at the Data Input stage, This will require additional staffing of 10 resources to handle the new process change. Benefit of the Change :This new process will ensure that the applications flowing to the next stage has the appropriate information thereby reducing the recycled application from Underwriting Stage by 10% and Offer Stage by approximately 17.5%. This essentially constitutes a saving in the Work Content in both these phases as follows :Underwriting Stage :9% reduction in Assess Credit Case which constitutes a decrease in the work content of the Underwriting Stage. Hence we will be having an Average Processing Time of 18 minutes for this stage. Nbr of People required = = A Saving of 1 resource. Offer Stage:33/1.64 21 People

The offer stage is one of the stages with a high recycling rate, Morever as it is later in the process, any recycling from this stage to the Data Input stage significantly increases the amount of rework on the applications in all the earlier stages which has a compounding effect of rework on the Underwriting stage. Hence this will further reduce the work content on the Data Input and Underwriting stage by 15%. Hence the Cycle time for new Data Input and Underwriting stage will be cut from a cumulative of (36+35) = 71 minutes to 61 minutes. This will proportionately reduce the staffing required for these two stages from (22 + 22) = 44 People to Nbr of People = 61/1.64 = 38 resources. Overall the process needs an addition of 3 resources but will have a benefit of reduced recycling and improved employee morale due to repetition of work and greater streamlining of the processes.

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